Merger of Yara-CF fertilizer makers could boost N. American rivals

Tue Sep 23, 2014 4:57pm EDT
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By Rod Nickel

WINNIPEG, Manitoba, Sept 23 (Reuters) - A merger of the two of the biggest global producers of nitrogen, Yara International ASA and CF Industries Holdings Inc, could result in more stable prices for the fertilizer, benefiting others in the industry, including Canada's Agrium Inc and Potash Corp of Saskatchewan.

Unlike the potash and phosphate fertilizer sectors, where control of production is in the hands of a relatively small number of producers, the nitrogen industry is fragmented.

"The more consolidated an industry is, the higher and more stable are the prices of its products ... and the margins that the producers earn," said Raymond Goldie, analyst at Salman Partners on Tuesday. He said there is a good chance the Yara-CF deal will not be consummated for political reasons.

Early on Tuesday, Norway's Yara and Chicago-based CF said they are in talks about a merger of equals that would create a $27.5 billion global fertilizer producer.

Shares of Agrium, the fourth-largest nitrogen producer, climbed 2.7 percent in Toronto. Potash Corp, the No. 3 nitrogen producer, finished roughly flat, as its business is more focused on potash.

Potash Corp would gain a stronger competitor in nitrogen sales, but consolidation would benefit the industry long-term, said Peter Prattas, analyst at Cantor Fitzgerald.

A combined CF and Yara would still control less than 10 percent of global nitrogen production, said BMO Capital Markets analyst Joel Jackson. In Western Canada, where each of the companies owns plants, a combination would control about half of the region's market share, assuming there are no competition concerns, he said.

Separately, Agrium Chief Executive Chuck Magro said on Tuesday the company expected low corn prices to spur consolidation of the U.S. farm retail sector, which involves selling seed, chemicals and fertilizer directly to farmers.   Continued...